A debt passed down

Thanks to the poor investment decisions of the last 50 years, Britain has been saddled with massive debts, says Tom Bulford. And it’s today’s youth who will pay for it.

Last weekend, I was going through some papers left by my deceased father and came across an inventory of goods found in a house that belonged to my great grandfather in 1908. These included lead coolers, a butter churn, a copper warming pan and a mangle.

Now, I knew what a mangle was. But as a boy, I didn’t have to stand tirelessly pumping my arm back and forth wringing water from our bed sheets in the mangle. I was spared that chore because of the advances in technology in my parents’ lifetime. And for the most part, each succeeding generation is better off than the one preceding it, because of these advances in technology.

But that’s not true of today’s young. They might have Facebook and iPhones, but they are also facing a future with student loans, poor job prospects, no spending power and no chance of affording a property for their family.

In Penny Sleuth last week, I provoked quite a deluge of comments by blaming recent ‘baby-boomers’ for this state of affairs. And quite a few of the comments seemed to miss my point. So I wanted to revisit this important story today…

Why today’s young are paying for it

What we know for certain is that this current economy of ours is in a mess and that its international standing, whether measured in terms of income per head or industrial competitiveness, has been in relative decline for the last 50 years. I am not one who believes in the sanctity of manufacturing. Fashion and football are just as valid ways of making money as making widgets. But we have allowed the ‘socially useless’ financial sector to become far too big. And we have been happy to invest our savings in unproductive bricks and mortar rather than entrepreneurial businesses that can make a decent return on capital and provide the jobs that today’s young people desperately need.

I would argue that we must look at who has been investing the money unwisely. It can only be laid at the door of those who allowed it to happen, and that means adults in the period of, say, 1950-2010.

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OK, so that includes people born before the ‘baby boomer’ years of 1946-64 (the Wikipedia definition), and some who were born since. But collectively, the group of adults in this country over the last half century or so have presided over an economic disaster. And it is today’s young that are paying for it. The £1.25trn government debt burden will reduce spending power and thus their standard of living. Student loans, dim job prospects, and a long future of renting property are just some of the challenges facing today’s young.

It is not good enough to point the finger at others. Some blame the bankers, some blame Tony Blair, some Mrs Thatcher, and some blame the unions. Of course nobody wants to feel that it is their fault, and indeed it is not the fault of any one individual. But everybody can make a contribution. The legacy of a generation is only the sum of the decisions made by all its members. Everybody has had a vote and by and large they have voted for their own short-term self-interest, and not for the greater good of the nation.

Retiring with £31,000 debt

I simply don’t agree that today’s economic crisis is just an unfortunate accident that nobody could have foreseen. For years it has been obvious that we have not been investing wisely in our economic future as have, for example, the Germans. For years it was obvious that we were not creating real lasting prosperity. As that excellent Financial Times journalist Barry Riley once wrote, “you don’t create wealth just by selling houses to each other at ever rising higher prices.”

I also think that the adults of the last 50 years should have realised that they were likely to live longer. Life expectancy has been rising steadily throughout the last century and more. Is it too much to expect that pension and healthcare planning should have taken that into account?

For me, increased life expectancy is at the heart of the matter. Tackled on this subject on a radio debate the other day, I heard UK pensions expert Dr Ros Altman say this is something we “should celebrate”. Well, of course it is, Ros! It’s great that people are living longer. But economics is not about emotion. It is about money and about whether we can afford to pay for things. And the generation – call them ‘baby boomers’ or whatever you like – that have recently retired or are close to doing so simply has not, collectively, saved enough to pay for the benefits to which they think they are entitled.

According to figures from Prudential released in January, the average owed by people retiring is £31,000. That is why they are having to borrow huge sums to make up the gap and – although not all of the £1.25trn debt burden is due to this – it is a large part of the reason why today’s young people face such a grim future.

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